Shares of high-growth companies have been hammered since the beginning of the year due to the Fed’s aggressive interest rate hikes. Many fundamentally strong growth stocks, such as Oracle Corporation (ORCL), have fallen significantly.
ORCL provides products and services that address enterprise information technology (IT) environments. The company’s businesses include cloud and license, hardware, and services. Its products and services include applications and infrastructure offerings delivered through various IT deployment models.
Its IT deployment models include on-premises, cloud-based, and hybrid deployments. Its Oracle Cloud Services offerings include Oracle software-as-a-service (SaaS) and Oracle Cloud Infrastructure (OCI) offerings, which provide an integrated stack of applications and infrastructure services delivered via cloud-based deployment models.
The stock has declined 29.6% in price year-to-date and 32.7% over the past year to close the last trading session at $61.40. It is currently trading 42.3% below its 52-week high of $106.34, which it hit on December 10, 2021.
ORCL failed to beat the consensus earnings estimate in the last quarter but met the revenue estimate. Its EPS missed the consensus estimate by 4.2%. The company blamed the strengthening of the U.S. dollar for its weak earnings. Without the impact, ORCL’s EPS would have been 8 cents higher.
ORCL completed the acquisition of a health IT company named Cerner in June. The company’s total revenue in the previous quarter rose 8% in constant currency without considering Cerner, thus depicting its strength in growing applications and infrastructure cloud businesses.
ORCL’s two cloud businesses currently account for more than 30% of its total revenue. The company expects its cloud businesses to account for an even larger share of its overall revenue. As Cerner is integrated into ORCL, it is expected to positively impact its revenue and earnings in the upcoming quarters and result in cost efficiencies.
The company expects its constant currency organic revenue growth to hit double digits along with a similar increase in its EPS. ORCL Chairman and CTO Larry Ellison said, “We expect Cerner to do even better in the coming quarters as we develop an all-new suite of healthcare cloud services.”
“Multi-Cloud access to the Oracle Database and Oracle’s MySQL HeatWave database will make the world’s two most popular databases even more popular,” he added.
Here’s what could influence ORCL’s performance in the upcoming months:
Mixed Financials
ORCL’s total revenues increased 17.6% year-over-year to $11.44 billion for the first quarter that ended August 31, 2022. The company’s non-GAAP operating income increased 3.3% year-over-year to $4.47 billion. Its non-GAAP net income declined 3.9% year-over-year to $2.82 billion. In addition, its non-GAAP EPS remained flat year-over-year at $1.03.
Favorable Analyst Estimates
Analysts expect ORCL’s EPS for fiscal 2023 and 2024 to increase 1.3% and 14% year-over-year to $4.96 and $5.66. Its revenue for fiscal 2023 and 2024 is expected to increase 16.5% and 6.2% year-over-year to $49.46 billion and $52.55 billion.
Mixed Valuation
In terms of forward non-GAAP P/E, ORCL's 12.37x is 25.7% lower than the 16.65x industry average. Its forward EV/EBIT of 12.21x is 16.9% lower than the 14.69x industry average.
However, the stock's 1.46x forward non-GAAP PEG is 5.2% higher than the 1.38x industry average. In addition, its 3.35x forward P/S is 36.3% higher than the 2.46x industry average.
Higher-than-industry Profitability
In terms of trailing-12-month gross profit margin, ORCL’s 77.78% is 54.2% higher than the 50.43% industry average. Likewise, its 21.74% trailing-12-month levered FCF margin is 170.7% higher than the industry average of 8.03%. Furthermore, the stock’s trailing-12-month Capex/Sales came in at 11.70%, compared to the industry average of 2.37%.
POWR Ratings Show Promise
ORCL has an overall rating of B, equating to a Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. ORCL has a B grade for Stability, in sync with its 0.86 beta.
It has a C grade for Value, consistent with its mixed valuation.
ORCL is ranked #22 out of 147 stocks in the Software - Application industry. Click here to access ORCL’s Growth, Momentum, Sentiment, and Quality ratings.
Bottom Line
Despite the fall in growth stocks like ORCL this year, the demand for cloud remains extremely strong as companies keep investing in improving their cloud ecosystems. Moreover, its acquisition of Cerner is expected to enhance its revenue and earnings.
Given the favorable analyst estimates and high profitability, we think it could be wise to buy and hold the stock for the long term.
How Does Oracle Corporation (ORCL) Stack Up Against its Peers?
ORCL has an overall POWR Rating of B, equating to a Buy rating. One could also check out these other stocks within the Software - Application industry with an A (Strong Buy) or B (Buy) rating: Commvault Systems, Inc. (CVLT), Rimini Street, Inc. (RMNI), and eGain Corporation (EGAN).
ORCL shares were trading at $61.52 per share on Friday morning, up $0.12 (+0.20%). Year-to-date, ORCL has declined -28.60%, versus a -22.60% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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